The Federal Reserve has, unsurprisingly, has maintained the Federal Funds rate steady at its previous rate of 5.25% to 5.50% – a move that is very much aligned with market expectations.
While maintaining its cautious approach to monetary policy, the Fed has signaled the possibility of a rate cut as early as September if inflation continues to ease.
In the U.S., job openings rose to 8.184 million in June, down from 8.23 million in May. Initial jobless claims also increased significantly to 249,000, the largest rise since August 2023.
The manufacturing sector in the U.S. continues to face challenges, as evidenced by the ISM Manufacturing PMI dropping to 46.6 in July, marking the sharpest contraction since November 2023. In contrast, the ISM Services PMI is expected to rebound to 51 in July, indicating a return to expansion in the service sector.
Across the Atlantic, the Euro Area’s GDP grew by 0.6% year-on-year in the second quarter, the strongest growth in five quarters. Despite this positive development, core inflation rose to 2.9% year-on-year in July, exceeding market expectations and suggesting persistent inflationary pressures.
In the UK, the Bank of England reduced its interest rate by 25 basis points to 5%, aiming to stimulate economic activity amidst a challenging economic environment. Meanwhile, the Bank of Japan increased its policy rate to 0.25% and hinted at further hikes if economic conditions warrant.
China’s economic challenges continue, as reflected by the Caixin Manufacturing PMI falling to 49.8 in July from 51.8 in June. In response, the People’s Bank of China (PBOC) has cut various rates to support economic activity, with further monetary easing likely if inflation and other economic indicators remain weak.
Australia’s inflation presents a slightly different picture. The Reserve Bank of Australia’s (RBA) preferred inflation measure, the trimmed mean, rose by 0.8% in the second quarter, slightly below expectations. This allowed the annual inflation rate to drop to 3.8%, reinforcing the RBA’s stance to hold rates at 4.35% in the upcoming meeting. Potential rate cuts later in the year may be considered if inflation remains under control.
In the commodities market, crude oil prices declined by 0.43% this week, settling at $76.83 due to concerns about global economic growth affecting demand. Conversely, gold prices rose by 2.45% to $2445, driven by market expectations for potential Fed rate cuts, which are seen as supportive for precious metals.
Market volatility has increased, with the Volatility Index (VIX) rising to 18.58 from 16.38.
Markets may be turbulent this week, and they will look at upcoming economic events for further direction.
On Monday, Japan will release the BoJ’s interest rate meeting minutes, which will offer valuable insights into the central bank’s decision-making process behind its recent rate hike. China’s Caixin Services PMI will also be released, providing an update on the service sector’s performance.
Tuesday will see Australia’s RBA interest rate meeting, where market participants will closely watch for any shifts in the central bank’s forward guidance and inflation targets. The U.S. will release the ISM Services PMI, a key indicator of the service sector’s health, while the Euro Area will report on retail sales.
On Wednesday, New Zealand will announce its unemployment rate, providing insights into the country’s labor market dynamics. Thursday will feature Australia’s NAB Business Confidence report and China’s trade balance data, both critical for assessing economic conditions.
Finally, on Friday, China will release its CPI and PPI data, which will be crucial for assessing the state of the Chinese economy and the potential for further monetary policy easing by the PBOC.
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